Political strife carried cost, says Thanong
By Vichaya Pitsuwan
Political infighting over the past two to three years has been the major impediment to economic growth, according to former finance minister Thanong Bidaya. ''The instability over the past two or three years has directly held back growth and affected new investment,'' Mr Thanong said.
''Just consider the megaproject investments, and how long they have been delayed. If we had only two new mass transit routes now, carrying 300,000 to 400,000 passengers per day, how much in energy savings would we gain?''
The Samak Sundaravej government has pledged to invest 1.7 trillion baht in new mass transit, education, logistics, health care and irrigation programmes over the next several years to improve the country's infrastructure and support future growth and spur investment.
The megaprojects were first proposed more than five years ago under the Thaksin Shinawatra government, but have been delayed due to political uncertainties and policy changes.
Mr Thanong, who served as finance minister during the 1997 economic crisis and later under the Thaksin government, said he was modestly optimistic about economic growth this year.
While oil prices would remain a risk factor for the economy over the next several months, Thailand's economic fundamentals remain strong.
High global commodity prices would also help support farm income through to the end of the year.
Mr Thanong said economic growth this year would probably exceed 5%, and added that recent declines in oil prices should reduce pressure on inflation over the next several months. Consumer prices hit a 10-year high in July at 9.2%, up from 8.9% the previous month.
''But I don't think we will see inflation reach 10% this year, and averaged for the entire year, 7% to 8% seems more likely,'' he said.
''We have managed inflation quite well actually, considering double-digit rates in China and Vietnam.''
But the former career banker said the Bank of Thailand should exercise caution in setting interest rate policies, as higher rates would only increase financial costs for businesses and households and potentially lead to even further increases in prices.
The central bank and the Finance Ministry have been locked in a war of words over the past several months over monetary policy, as the central bank has signalled higher interest rates are needed to clamp down on inflation, while government policymakers say raising rates will only hurt economic growth.
Mr Thanong said both agencies needed to operate independently, but cooperate in setting overall policy.
''Both the central bank and the Finance Ministry need independence, and they also need to cooperate. They should both accept the responsibilities and roles of the other,'' he said.
While the Finance Ministry was responsible for allocating state funds to support short-term growth, the central bank's job was to oversee the long-term stability of the economy, he said.
Atchana Waiquamdee, a deputy central bank governor, said Thailand's economy was performing much better than many believed.
Economic growth this year and for 2009 would outpace the 4.8% growth recorded last year, she said yesterday at an economics conference at Dhurakijpundit University.
Mrs Atchana stressed that the central bank understood well the impact interest rates would have on the economy, and repeated the bank's position that curbing inflation was critical.
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